April 5, 2017

RHTLaw Taylor Wessing Managing Partner Tan Chong Huat shares opinion piece on greater accountability for REIT managers in The Business Times

RHTLaw Taylor Wessing Managing Partner Tan Chong Huat was featured in The Business Times article titled “Pushing for greater accountability of Reit managers in Singapore”. The article was first published in The Business Times on 5 April 2017. Pushing for greater accountability of Reit managers in Singapore Source: The Business Times © Singapore Press Holdings Ltd. Date: 5 April 2017 Author: Tan Chong Huat, Joseph Lau, Gerald Tham WHILE Singapore is now the second largest Reit market in Asia, recent headlines have highlighted possible deficiencies of the Reit industry, including the accountability of Reit managers. This issue has not gone unnoticed by the authorities. While the conduct of Reit managers is currently regulated by the Code on Collective Investment Schemes (CIS) and the common law, Parliament in January 2017 passed the Securities and Futures (Amendment) Act 2017, which introduces statutory protections for unitholders against the failure of Reit managers and their directors to act in the best interests of unitholders. In this first of a two-part article, we explore some options available to the unitholders of a Reit under the current regime to hold a Reit manager accountable for its actions. The Singapore courts have yet to determine whether the manager of a Reit owes fiduciary duties to unitholders. Nevertheless, Lee Chiwi, who authored a book on the legal nature of a unit trust, suggests that such duties are owed for two reasons. First, Reit managers exist not solely for their own benefit, but also for the benefit of unitholders, which is a characteristic common to fiduciaries. Second, a Reit manager's position should be supervised under equitable principles as unitholders are not able to unilaterally amend or determine what powers and duties a manager possesses under the trust deed of a Reit. Unitholders are also vulnerable with limited or no rights to interfere with the management of the Reit, as the manager typically has autonomy to determine how the interests of unitholders are served. The trust deed of a Reit is required to contain provisions which allow the manager to be removed by a simple majority of unitholders present and voting at a general meeting (with no unitholders being disenfranchised), and to allow a general meeting to be convened at the request of at least 50 unitholders or unitholders representing at least 10 per cent of the issued units of the Reit. While convening a general meeting to pass a resolution to remove the manager is theoretically possible, this may prove difficult in practice. In a 2007 article in the Singapore Academy of Law Journal, Adjunct Associate Professor Joseph Chun noted that Reit managers are usually owned by the sponsor of the Reit, which in turn would typically hold the lion's share of units in the Reit and thus a greater proportion of the voting power. Therefore, even if unitholders are able to requisition a general meeting, they may find it difficult to gather the required simple majority to pass the resolution for removal of the manager. The CIS requires a Reit manager to "have arrangements in place to take all reasonable steps to obtain the best possible result for the scheme, taking into account the following execution factors: price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of a trade or transaction". That said, the requirements of the CIS are not statutory obligations, and a breach of the CIS does not itself generate criminal liability. If, however, a breach of the CIS is established, it may support the unitholders' case in civil or criminal proceedings that the manager is liable. Also, the Monetary Authority of Singapore (MAS) may take into account a breach of the CIS in determining whether to revoke or suspend the authorisation of the Reit, or to refuse to authorise new schemes by parties responsible for the breach in question. Nevertheless, it may not be easy or rewarding for unitholders to show that a manager has breached the CIS. For instance, it is unclear whether paying a higher price for a property acquisition from a related party would in itself demonstrate that a Reit manager did not use "all reasonable steps" to obtain the best possible result for the Reit. Moreover, given the possibility of the authorisation of the Reit being revoked or suspended by MAS, unitholders may wish to consider whether establishing such a breach achieves their objectives, as such revocation or suspension of authorisation may negatively impact the value of their investment in the Reit. For instance, if it is clear that, but for the manager's under-performance, the Reit would be performing well, it is more sensible for unitholders to explore other options to preserve the Reit as an investment vehicle whilst addressing the quality of management. The most advantageous option for unitholders will depend on the unique circumstances of each case. Unitholders may apply to the Singapore courts for an order under the Securities and Futures Act where the Reit manager has conducted the affairs of the Reit or exercised its powers in a manner that is oppressive or disregards unitholders' interests. Another ground for such application to the Singapore courts is where an act of the Reit manager has been done or is threatened which unfairly discriminates or is prejudicial to unitholders. The court is empowered to make a wide range of orders, including an order which cancels or varies any transaction or regulates the conduct of the affairs of the Reit manager in the future. However, there are no instances where the Singapore courts have interpreted or applied this provision in the Securities and Futures Act, and it remains to be seen how these grounds would be satisfied. The writers are from RHTLaw Taylor Wessing LLP. Tan Chong Huat is managing partner of the firm; Joseph Lau and Gerald Tham are associates. The second part of this article will discuss the impact which the recent amendments to the Securities and Futures Act are expected to have on the regulatory regime for Reits, and consider whether recent events in the Reits industry will impact and shape discourse on the Reits regime.
April 3, 2017

Deputy Head of Real Estate Sandra Han shares that the government may take small steps to “test the waters” rather than signal an outright relaxation on property cooling measures in The Business Times

RHTLaw Taylor Wessing Deputy Head of Real Estate Sandra Han was featured in The Business Times article titled “Targeted approach likely to have muted market impact”. The article was first published in The Business Times on 11 March 2017. Targeted approach likely to have muted market impact Source: The Business Times © Singapore Press Holdings Ltd. Date: 11 March 2017 Author: Lynette Khoo WITH the government seen taking a targeted approach to adjusting the seller's stamp duty (SSD) and the total debt servicing ratio (TDSR) framework, market players believe the impact on the property prices and transactions will be muted. But it is highly debatable as to whether the move signals the start to a gradual unwinding of property cooling measures, with most observers perceiving the government's stance as largely unchanged. As things stand, it is not only retaining the current additional buyer's stamp duty rates (ABSD) and loan-to-value limits, but also imposing new taxes on transfer of shares in residential-property-holding entities to mimic the ABSD on direct residential transactions. "Rather than signal an outright relaxation on property cooling measures, the government's latest announcement reflects how the government is responsive to market feedback and can take small steps to "test the waters"," said Sandra Han, deputy head of real estate at RHTLaw Taylor Wessing LLP. Concurring, Cushman & Wakefield research director Christine Li said: "We expect the overall impact to the residential market to be rather muted, as the easing is just a minor tweak to help certain groups who are adversely affected by the cooling measures." Under the revised SSD scheme, the holding period for residential properties - after which the SSD will not apply - is reduced to three years from the date of purchase instead of four years. The SSD rates for each tier are also cut by four percentage points. But since the reduced SSD rates apply only to properties purchased from March 11, this is unlikely to have a major impact on transaction volumes in the near term nor would speculative activities set in, property consultants say. "Over the years, SSD has perhaps deviated from its original intent and lost its relevance given that other measures such as ABSD and TDSR have been put in place to deter speculation," Ms Li said. "On the flipside, SSD can potentially hit one group of home owners really hard - those whose circumstances change due to unforeseen events such as deaths, divorces and job losses." Property consultants note that the move to waive the TDSR framework on mortgage equity withdrawal loans not exceeding half of the value of the mortgaged property is also expected to affect only a small group of owners. Such equity loans can typically be obtained by borrowers against their existing property, for which they have been paying down the mortgage. Such changes will help homeowners to monetise their properties in their retirement years, said PropNex CEO Ismail Gafoor. The TDSR framework - which caps all borrowings of an individual at 60 per cent of gross monthly income - still largely applies in most situations. Nonetheless, the latest moves may be perceived as the start of unwinding of cooling measures, said JLL national director for research and consultancy Ong Teck Hui. This could lead to more buyers coming back to the market as they perceive the market is bottoming and hopeful of a recovery, he said. Many market players are more worried about the amendments to the Stamp Duty Act, particularly for unforeseen consequences on business transactions. The government is imposing new taxes, known as Additional Conveyance Duties (ACD), on transfer of shares on property holding entities (PHEs) that primarily own residential properties in Singapore. The ACD on the buyer that becomes a significant owner mimics the buyer's stamp duty of up to 3 per cent plus a 15 per cent ABSD; the ACD at a flat 12 per cent on the seller with significant ownership during the three-year holding period is higher than the reduced SSD on direct sale of residential unit. Still, a prevailing 0.2 per cent stamp duty for transfer of shares will continue to apply. This is seen as one of the ways to expand tax revenue sources, quipped SLP International executive director Nicholas Mak. Apparent outcomes from this could be higher transaction costs to property funds and developers. It could also push developers who are hard-pressed by looming deadlines to sell out their projects under the conditions of qualifying certificates or ABSD remission clawback to offer units directly at steeper discounts. Of greater concern is some unintended consequences that have not been envisaged. This move is "yet another wound for the real estate funds management industry" but fund managers are hardly speculators of residential properties, said International Property Advisor key executive officer Ku Swee Yong. The ACD on share transfers may also affect estate planning, he said. Another tricky situation may be when companies undertake joint venture (JV) agreements for property development, according to Dentons Rodyk & Davidson senior partner Lee Liat Yeang. When a company acquires the land first via a property holding entity before bringing in a JV partner, it is unclear if the sale of a 50 per cent stake in that entity to the JV partner will incur ACD. PwC real estate and hospitality tax leader Teo Wee Hwee felt that government should provide clarity on these issues. In principle though, a new JV partner should be able to obtain the same ABSD remission that applies to a property developer, he said. "The new rules should not be seen stifling economic activities in real estate."
April 3, 2017

“The authorities are alive to the many and varied challenges posed by developments in the marketplace if and when they take place,” said Roderick Martin SC, Head of Litigation and Dispute Resolution, to The Edge Singapore

RHTLaw Taylor Wessing Head of Litigation and Dispute Resolution Practice Roderick Martin, SC was featured in The Edge Singapore article titled “Singapore responds as financial crime evolve”. The article discussed how financial crimes have evolved over the years,  including a new generation of white-collar criminals and greater sums of money involved. It questioned whether Singapore built herself into an international financial centre for a cess pool for financial crime. Mr Martin noted the scope of what constitutes as wrongdoing has expanded over the years. “Now, we have the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, the Securities and Futures Act, the Companies Act, et cetera, that have outlawed many forms of financial malpractice,” he said. Furthermore, as the business landscape evolved, so have the laws been constantly updated. Mr Martin added, “What all this shows is that the authorities are alive to the many and varied challenges posed by developments in the marketplace if and when they take place. It is therefore unfair to say that more can be done to combat financial malpractice. In fact, much has been done.” As financial crimes evolve, it becomes increasingly difficult for authorities to predict where abuses of the law may happen. “Nobody has a crystal ball. It is therefore inevitable that the authorities will by and large be a step behind,” he said. The full article, “Singapore responds as financial crime evolve,” can be found in The Edge Singapore, 13 March 2017.
March 30, 2017

“The wave of restructuring was a survival necessity, preparing banks and other financial institutions for the opportunities that will be coming this year”, Deputy Head of Banking & Finance Ow Kim Kit discusses more with Singapore Business Review

RHTLaw Taylor Wessing’s Deputy Head of Banking & Finance Ow Kim Kit was quoted in an article published in Singapore Business Review titled “Will 2017 see the “great adjustment”? The article was first published in the March 2017 edition of Singapore Business Review.  --- Will 2017 see the “great adjustment”? After entering a bleak forest of slow growth and restructuring in 2016, investment banks can look forward to a relatively brighter 2017 amidst a fintech-influenced, compliance-heavy environment. Source: Singapore Business Review © 2017 Charlton Media Group Date: March 2017 Edition If investment banks in Singapore had a hard time coping with the flurry of challenges and changes in 2016, then 2017 will provide a much-needed breather, especially for banks that have started shaping up their operations. Analysts forecast a thrilling year ahead marked by an improving outlook as well as opportunities to collaborate with financial technology firms. Consolidation, innovation, and compliance will be the key themes in the coming months – and banks that fail to keep up will remain lost in the woods. “The winners in this environment will be investment banks that restructure successfully and develop a sharp focus on the things they do best and embrace innovation,” says Liew Nam Soon, ASEAN managing partner, financial services at Ernst & Young Solutions LLP. Liew reckons that investment banks in Singapore face a slew of hurdles that are driving down return on equity (ROE). Not only is economic growth slowing, but revenue for fixed income, commodities, and currencies is on the decline. Banks must also contend with new tax and compliance regulations that impose tougher penalties. As a result, ROE amongst investment banks has declined in the past years, forcing some to restructure their businesses. Liew says EY has been working with investment banks to restructure operations and implement new models to optimise business, taking into consideration legal entity structures and transfer pricing. “We have seen a lot of downsizing in the past couple of years for investment banking and I think that has resonated across many financial institutions,” says Ow Kim Kit, deputy head of banking and finance practice, RHTLaw Taylor Wessing LLP. “The result is that many senior level people have been displaced, most of them very experienced, having seen through several market cycles.” She reckons the wave of restructuring was a survival necessity, preparing banks and other financial institutions for the opportunities that will be coming this year. Assimilating into new circumstances “I saw the second half of 2016 as a time when investment banking players regrouped and built the backdrop for what may be a very exciting 2017,” says Ow. “The markets will assimilate into the new set of circumstances and a positive outlook should soon emerge within the first quarter, barring any severe and unexpected situations.” Ow believes we are not likely to see that many mega deals but thinks we should expect to at least see some reasonably steady deal flow till at least early 2018. She warns though that some banks may have gone too far in their restructuring. Those that implemented severe layoffs may have let go of experienced executives and dissolved business units that will be critical to forthcoming deals. “If the investment banking sector picks up in 2017, it may be that some of these financial institutions would face the challenge of having young teams front complex deals or may lose out totally because they are no longer able to do such deals,” says Ow. “2017 may be the year of the ‘Great Adjustment’,” says Marcus Chow, partner at Bird & Bird ATMD LLP, explaining that banks face a lot of uncertainty this year that will put their new models to the test. He reckons the Trumpian governance approach may convince international banks to reduce their outsourcing of banking support jobs in Asia. US President Donald Trump has repeatedly warned US companies that they would face higher taxes and other penalties for outsourcing jobs abroad. “Also, your guess is as good as mine how ‘draining the swamp’ will impact Wall Street and its repercussions in Asia,” says Chow. “However, if the election promise to pull back on regulations is carried through in the US, this may cause a ripple across parallel regulations elsewhere in Asia and may lead to a late Autumn bloom.” Fintech’s promise On top of a slow-growth environment, investment banks in Singapore currently face multiple market and regulatory constraints. Customer trust has also weakened in the wake of certain interest rates and foreign exchange scandals, as well as the rising threat of cybercrime. In response, banks are beginning to leverage technology, analytics, partnerships, and industry utilities to shore up security, improve service and reduce the cost to serve. Smarter banks have even formed alliances with their upstart rivals, the financial technology (fintech) firms. “The disruption from fintech firms, which initially focussed on retail, wealth, and payments and is now extending to investment banking,” says Liew. “These fintechs are using technology innovation to capture market share from incumbent investment banks.” Liew reckons that despite the cutthroat competition between banks and fintech firms, there are opportunities for collaboration, including in cloud technology, robotic process automation, analytics, digital transformation, blockchain, artificial intelligence, and the Internet of Things. “The challenge of disruptive technology and digitisation of money flows and fund raising, which is not going to go away, will also force investment banks to rethink roles and value proposition,” adds Chow, and partnerships with fintech firms may help facilitate such transformations. “Singapore’s financial technology sector is poised for growth, facilitated by its highly mature ICT market and supportive regulatory landscape. The country has one of the world’s most technologically advanced telecommunications markets, with 3G/4G subscribers reaching 8.4m and broadband internet subscribers at 4.3m in 2016,” says BMI Research in a report. “We expect the development of sandbox regulations to further advance the spread of fintech within the city-state, whilst its status as a regional banking hub will increase its attractiveness to fintech startups that are looking to enter the region.” According to KPMG, around 200 fintech firms operating in Singapore were opened in the past two years – the fastest growth rate in Asia. Add to this Singapore’s financial inclusion rate – the highest in Asia in 2014 at 96.4%, according to World Bank data. “In our view, the government’s active participation in the development of a fintech-friendly regulatory environment is key to fintech development. As part of its efforts to develop Singapore into a smart financial centre where innovation and technology are used to enhance value and increase efficiency, the government released sandbox regulatory guidelines in June 2016,” explains BMI Research. 2016 slowdown The cautiously optimistic outlook for investment banks in Singapore follows a difficult 2016 during which investment banking activities decelerated and the Singapore’s gross domestic product (GDP) growth weakened. “Mergers and acquisitions (M&A) deals and initial public offerings were fewer in 2016 and this slowdown is felt in investment banking,” says Liew. “Soft commodity prices have also affected the performance of trading desks.” He reckons the slowdown in China’s economic growth and Singapore’s GDP growth have reduced the appetite for business expansion, which negatively affected loans growth. Amidst this slowing market, local investment banks have begun to feel the heat as Chinese investment banks raised their competitive aggresion. A small consolation for investment banks in Singapore is that the government will likely rally to bring GDP growth back on track. “We expect the government to introduce new policy measures based on the recommendations of the Committee on the Future Economy – and in the Singapore budget announcements – to help businesses improve local value creation and expand overseas,” says Irvin Seah, senior economist at DBS. Still, he expects 2017 to be a year of consolidation, noting that whilst growth has bottomed it will remain tepid due to “challenging” global conditions such as stronger US trade protectionism, tightening monetary policy from the Federal Reserve, and a slowdown in China. “2016 was somewhat of an ‘annus horribilis’ for the equity teams of investment banks in Singapore,” says Chow. “Investment banks already burdened by enhanced regulatory oversight continue a struggle against weak market and fundraising conditions.” However, Chow adds, “The reprieve is that M&A work continues to thrive and the uptick in activities on the buy and sell sides is providing a consistent stream of work for the M&A teams in investment banks.” Silver lining Analysts note that despite the dire conditions in 2016, there were notable deals that continued to pull through. Ow says in 2016 she was working on an estimated US$400m collateralised loan obligation special purpose vehicle. It will securitise Asia emerging markets loans to borrowers in the Asia-Pacific region that were originated by both global and regional banks in Asia, and is envisioned to help revive the Asian securitisation market. A leading American investment firm, alongside leading banking institutions in Asia, are joint-arrangers on the transaction. In terms of sector focus and deal value, Liew reckons a large proportion of the deals have been in real estate, industrials, and technology. State and sovereign wealth funds executed a sizeable proportion of the deals. Investment banks in Singapore may continue to find success in these sectors, provided they can shape their business to suit the prevailing slow-growth, fintech influenced, compliance-heavy environment. “Although we are facing slower growth, businesses will continue to need help in raising capital, managing risks, and facilitating trade,” he says. “Investment banks have restructured their businesses and it is a journey and still work in progress. Controls and compliance are key.”